by: David Arnold, February 1997

David Arnold is Executive Vice President in the Philadelphia office of PKF Consulting. He was one of the founders of the International Association of Conference Centers, and currently serves as an advisor to the IACC Board of Directors.

From their origins in the 1960s, conference centers have fought the battle of identity within and outside the lodging industry. Designed as a special niche product even before such concepts as limited-service or all-suite hotels, conference centers have constantly striven to prove to the rest of the world that they are not just a hotel with extra meeting space, but a specialized facility designed to master the needs of the meetings business. The niche has recently distinguished itself by manifesting both excellent operating performance, as well as growing acceptance in the development and lending communities. More importantly, conference centers have become the preferred meeting destination for many sophisticated meeting planners.

PKF Consulting, in conjunction with the International Association of Conference Centers (IACC), has prepared a financial profile of the performance of this specialized lodging product through 1995. Following are some of the findings of that study. More People, More Dollars

Turning first to the numbers, we find that, since the depths of the recession in 1991, to year-end 1995, U.S. conference centers have achieved a 27.2 percent increase in occupancy. This compares to an 8.3 percent increase in occupancy for the overall lodging industry during this same period. Except for resort conference centers, all types of conference facilities have enjoyed double-digit increases in occupancy since 1991.

On the revenue side, the story has been equally as impressive. Total revenue, measured on a per occupied room basis, has grown 18.9 percent for resort and executive conference centers since 1991. For comparative purposes, inflation during the same period was 11.9 percent, and the average daily room rate for U.S. hotels grew only 12.5 percent. Corporate and college/university conference centers were limited in their ability to participate in the increased dollars being spent by outside groups because of their apparent need to accommodate a greater percentage of in-house and academic meetings.

The net result for the average U.S. conference center has been a staggering 174 percent improvement in the bottom line. The average operating profit before fixed charges, measured on a per available room basis, grew from $4,367 in 1991 to $11,969 in 1995. With per available room revenues growing only 17 percent during the same period, it appears that the growth in profits is attributable mostly to management’s ability to control operating expenses.

Executive Conference Centers Excel

Given that their primary target market is corporate meetings, it appears that executive conference centers are best able to take advantage of the recent improvements in the national economy and corporate profits. Among the different types of conference centers, executive conference centers achieve the highest levels of occupancy, revenues per occupied room, and operating profits. Discussions with corporate meeting planners reveal that, when the budget allows, executive conference centers are greatly preferred over traditional hotels. The quality of the facilities, their adaptability to the latest presentation technology, and the wealth of experienced conference planners and service managers are the reasons cited most often for this preference.

In contrast to the readily perceived positive financial performance of executive conference centers is the performance of corporate-owned conference facilities. Having to prioritize the accommodation of in-house meetings, corporate conference center management is confronted by limitations to their opportunities to attract more lucrative demand from outside sources. Such limitations, when isolated, directly affect the financial statistics that apply to this business. While the average financial performance for corporate conference centers indicate an operating loss, it must be noted that the fair-market dollar value of the in-house business accommodated would most likely cover the fixed operating expenses of those facilities, therefore resulting in outside income as a significant added benefit.

From Training to Planning and Recreation

The shift in types and sources of conferences is yet another indicator of Corporate America’s shift in its use of conference centers. Once again, business organizations were identified as the number one source of conference demand for conference centers, followed by in-house groups, and academic institutions. However, a change in basic meeting purposes has occurred since 1991. Back then, training and continuing education were listed as the leading reasons for the conferences held at conference centers. For 1995, our survey reveals that management planning sessions are now the most frequent type of conference held at all but resort conference centers. This proliferation in management meetings can be attributed both to the improved budgets for such off-site sessions, as well as to the desire to have a specialized facility for such important meetings.

Either in response to the increase in social/transient demand, or in an effort to attract increasingly recreation-minded conference-goers, recreational facilities are significantly more extensive at conference centers than at traditional transient hotels. More than half of the conference centers offer their guests tennis courts, a fitness club, or a swimming pool. Either golf, basketball, jogging, or volleyball are offered at over one-third of the conference centers surveyed.

Who’s That On The Golf Course?

More and more, social/transient demand has become an increasingly significant portion of the room nights accommodated at U.S. conference centers. For all but resort conference centers, the percentage mix of social/transient demand has increased approximately 10 percentage points since 1991. The reasons for this improvement include from the desire of conference centers to fill the gaps in their sales calendars, the overall improvement in the lodging industry, and the scarcity of vacancies at traditional transient hotels.

On the conference side, the improvement in the U.S. economy has allowed businesses, trade associations, and even academic institutions to increase their meeting budgets and standards. In turn, the impact on the conference center industry has been extremely favorable, as these specialized lodging facilities have been able to play their role in accommodating the type of specialty meetings demand they were built to serve.

Diversity: Good for the future?

In most circumstances, a diversity of demand sources would be viewed as a favorable shield against the cyclical nature of the accommodations industry. However, for the conference center segment, the question arises whether this influx of social/transient is beneficial in both the long- and short-term. Certainly, the increase in social/transient demand has helped to smooth out the seasonal peaks and troughs and improve annual occupancies. Nevertheless, this demand is more sensitive to economic fluctuations and more likely to switch back to traditional transient hotels, should price wars break out.

As we have observed with other specialized forms of accommodations, lodging facilities survive over the long haul when they attract those demand segments for which they have the most competitive advantages. Extended-stay hotels achieve their high occupancies and profit margins when more than 60 percent of their business is extended-stay demand. Bed-and-breakfast properties are most profitable when accommodating newlyweds and honeymooners.

While this current attraction to social and transient demand appears to be a great assist to the conference center industry, it does not help solidify the base of demand that is needed to sustain the industry over the long term. Conference center management should not turn down social/transient business that walks in the door, but it should be cautious not to over-extend sales efforts in pursuing non-conference business. Aggressive sales efforts directed at the conference market not only attract more business, but further expose the valuable primary market to the unique experience of a conference center. In turn, these targeted efforts will assure the health of the overall conference center industry for the future.

To purchase a copy of 1996 IACC Statistical and Financial Profile, please contact the research department of PKF Consulting at (415) 421-5378.

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